The case of Zuberi v Lexlaw Ltd provides much needed clarity in respect of the termination of a DBA by a client.
- Lexlaw Limited acted for Miss Zuberi in a financial mis-selling claim against her bank.
- The claim was funded by way of a Damages Based Agreement, entered into in 2014.
- Lexlaw Limited helped to obtain a settlement for Miss Zuberi of over £1 million.
- Miss Zuberi terminated the DBA and argued that no fees were due to Lexlaw Limited because the DBA was unenforceable. This was on the basis that the agreement contained a termination payment clause which was not allowed under the Damages Based Agreements Regulations 2013.
- Lexlaw Limited issued Proceedings for the recovery of their unpaid fees.
- In July 2020, HHJ Parfitt ruled in favour of Lexlaw Limited i.e. the termination provision in the DBA did not render the agreement unenforceable.
- Miss Zuberi appealed and, on 15 January 2021, the Court of Appeal handed down its Judgment and confirmed the decision of HHJ Parfitt: The inclusion of a termination clause is permissible and does not render a DBA unenforceable.
2021 and beyond
The decision is sensible and will help to encourage litigators, particularly commercial litigators, to use a DBA as a source of funding. LJ Jackson introduced DBAs in order to improve access to justice, but they have been rarely used due to the concerns around termination. The Court of Appeal decision will certainly make DBAs more attractive to litigators.
What would really make DBAs attractive to litigators, and again, commercial litigators, would be hybrid DBAs i.e. the ability to charge an hourly rate whether the case is won or lost and a percentage charge if the case is won – similar to a discounted Conditional Fee Agreement. Lord Justice Lewison was supportive of this in the Judgment, but Lord Justice Newey was not. Many legal experts and commentators think that the Court of Appeal’s decision has opened the door for Hybrid DBAs, however, there is no clear authority on that point and the writer suspects that this point will make its way to the Court of Appeal.
So, will 2021 be the year for DBAs? The writer thinks that there will be a growth in the use of this funding option due to the Court of Appeal’s decision on termination clauses. The writer also thinks DBAs will increase as law firms will test the waters and engage with clients under hybrid arrangements. So, the writer’s answer to the question is Yes BUT law firms should proceed with caution as the “Door has been partly opened, but the stairs are slippery” which is what Dominic Regan (adviser to the Costs and Litigation Funding team) recently stated to the writer during a discussion about the case.
This blog was written by Andrew McAulay who is a Partner at Clarion and the Head of the Costs and Litigation Funding team. Andrew can be contacted on 07764501252 or at email@example.com